Many realtors® as well as clients may not be aware of this seldom known program that allows us to add renovation costs into the mortgage. It’s a barrier many clients face when presented with the possibility of buying a “fixer upper” type of home and considering the capital needed to renovate a property without cutting corners. This can also be applied to your existing home.
Depending on your income and/or equity built up in the house, you can add as much as $40,000 in renovation costs to be included in your mortgage (in some cases even more). However, before you invest into a renovation, you need to know what’s your payback and which part of the renovations will make the most difference in terms of selling price.
In Canada, the Appraisal Institute has selected projects that their “specialists” feel offer the best potential for “payback” when selling. The Ontario branch of the Appraisal Institute created the chart below that illustrates the average payback potential for renovations when selling a house:
|kitchen – 78%,||bathroom – 71%,|
|interior painting – 74%,||exterior painting – 63%,|
|main floor family room addition – 55%,||central air conditioning – 52%,|
|new heating system – 50%,||new windows – 48%,|
|finishing the basement – 49%,||landscaping – 35%,|
|energy efficient features – 33%|
The glaring returns come mainly from kitchens and bathrooms. A generality accepted in the industry is that a kitchen should be renovated if it’s older than 20 years while a bathroom may have a 40 year life span. However, if you are looking to maximize your selling price, an earlier renovation date is obviously needed.
An important factor to consider when renovating is just how much is actually necessary. Kitchens generally start at about $10,000 and can climb to astronomical numbers if you allow yourself to run wild with top end finishes and decors. A full kitchen renovation usually involves new cabinets, countertops, appliances, and flooring. Bathrooms typically start at $5,000, however, if you need to relocate plumbing and wiring that figure may increase significantly.
Regardless of what you decide to do, knowing that this program exists will provide you with new options so you can make a wise decision. Each case is unique and needs to be assessed in co-operation with your renovator/decorator, realtor, and Mortgage Specialist.
Disclaimer: The opinions expressed herein belong to Michael Yosher and do not reflect the opinions of Scotiabank, or any of its affiliates/subsidiaries. For professional advice, please consult your local mortgage professional.